Thursday, October 28, 2010

TAMPA – The Florida Attorney General’s Office has reprimanded one its attorneys for notarizing documents for one of the “foreclosure mills” the office is investigating. Erin Cullaro, an assistant attorney general for the office’s Economic Crimes Division in Tampa, is a former employee of Tampa-based Florida Default Law Group.

The Attorney General is investigating the firm, along with three other Florida firms, for what “appears to be fabricating and/or presenting false and misleading documents in foreclosure cases.”

Cullaro was given permission from the Attorney General’s Office in April 2008 for dual employment, allowing her to notarize law firm documents for 15 minutes three days a week.

But, according to the written reprimand, Cullaro failed to renew the application into the new fiscal year, “which would have altered the {Attorney General’s Office } to your continued outside employment and accurately reflected the time commitment involved.”

In addition, the reprimand says, “your continued dual employment created an appearance of impropriety” because the attorney general’s office was inquiring into the practices of foreclosure law firms. The reprimand states that Cullaro’s says she quit her notary role before the formal investigation begun. Even so, she could ultimately lose her job, according to the reprimand. Tom Ice of Ice Legal in West Palm Beach represents homeowners in foreclosure and wants to question Cullaro about documents she signed in some of his cases. Her signature varies drastically and court documents assert she signed off on documents while out of town on business with the attorney general’s office.

Court documents reviewed by the Tribune show Erin Cullaro’s signature varied from a full, cursive signature to a squiggly “E.” When she signed the reprimand letter, she used the “E.”

Ice said Cullaro worked as a lawyer with Florida Default Group before she worked for the attorney general's office. When she left the firm, she continued to serve as an expert witness for the firm, signing affidavits to establish that the firm's fees were reasonable. Her sister-in-law, Lisa Cullaro, notarized the affidavits, according to court documents.

When Erin started work for the attorney general's office, the Cullaros changed roles and Erin Cullaro notarized the documents.

Ice said both of the Cullaro's signatures varied in appearance,In light of recent reports about foreclosure law firms allowing employees to forge signatures, Ice said he questions whether the Cullaros permitted this, too.

Matt Weidner, a St. Petersburg foreclosure defense attorney, said he also wants to question the Cullaros about inconsistent signatures, but that their attorneys have fought his motions.

"It's simple, really," Weidner said. "If it's their signatures and for some reason they signed them differently, why not just say that?"

John Cullaro, Erin Cullaro's husband, represents her in the case. He could not be reached for comment.

Both Lisa and Erin Cullaro no longer serve as witnesses or notaries for the firm, but the job has stayed in the family. John Cullaro, according to court documents, is one of Florida Default's new expert witnesses.

Wednesday, October 27, 2010

Due to recent court rulings and decisions in the courts of the State of New York where proper “STANDING” in a foreclosure action has been challenged, several title insurance companies will not insure a title where the title to be insured is coming through a foreclosure action either by deed from the referee or after title has passed to the foreclosing lender or its assignee and where the plaintiff commencing the action to foreclose a mortgage does not or did not have “STANDING”. If the foreclosing lender does not have standing to bring the action it is subject to being dismissed and the foreclosure sale and the referees deed may be void.

The issue of standing occurs when a mortgage which is being foreclosed was assigned to the plaintiff by an assignment of mortgage which was dated and/or acknowledged “AFTER” the commencement of the action even when the assignment states that is in fact effective as of a date which is prior to the action being commenced.

Title insurers are now adding this exception to their title insurance policies to circumvent this problem:

The mortgage being foreclosed was assigned to the Plaintiff by an assignment dated on _______, a date which is subsequent to the date upon which the action was commenced. Policy will except any loss, cost or damages that may be incurred due to a claim that the Plaintiff in the foreclosure action lacked “STANDING” to foreclose.

Prospective homebuyers should recognize that this exception protects the title insurance company, not them.

Attorneys general from all 50 states, as well as 39 state bank regulators, have joined forces in an investigation of mortgage servicers.

In a joint statement Wednesday, the group said it believes the so-called robo-signing of court documents in foreclosure cases, which has come to light in recent weeks, "may constitute a deceptive act and/or an unfair practice or otherwise violate state laws."

John Ryan, the executive vice president of the Conference of State Bank Supervisors, said, "The foreclosure process in the various states is designed to ensure a basic level of due diligence and accountability occurs before taking an action that has dramatic implications for homeowners and communities. Our priority is to ascertain if violations of state law occurred, to reestablish confidence in the integrity of the foreclosure process and take appropriate action to protect the rights of consumers and homeowners affected."

The group's formation coordinates and expands the individual efforts of several states that began investigating after problems with foreclosure documents surfaced late last month. (Alabama was not among the states represented when the announcement was first made Wednesday but joined the coordinated effort later that day.) So far, Ohio is the only state to file a civil suit; it alleges fraud by GMAC Mortgage.

Several large mortgage servicers, including GMAC Mortgage, of Ally Financial Inc.; JPMorgan Chase & Co.; Bank of America Corp. and Goldman Sachs Group Inc.'s Litton Loan Servicing, have halted foreclosures while they review their processes to make sure mistakes are absent from their filings of foreclosure documents.

Meanwhile, the New York State Banking Department, which is participating in the multistate effort, said it has sent letters to more than 20 mortgage servicers registered to do business in the state demanding they suspend foreclosures until the completion of thorough analyses of their procedures.

The companies are to respond by Oct. 22, outlining the steps they are taking to review their foreclosure processes; the results of the reviews, including descriptions of the process for verifying affidavits; any corrective action that has been taken or will be taken and the status of foreclosures pending in New York.

Separately, on Tuesday, Florida Attorney General Bill McCollum sent letters to Bank of America, JPMorgan Chase, GMAC Mortgage, PNC Financial Services Group Inc. and Litton Loan Servicing calling for meetings to discuss ways to "promptly and effectively redeem the integrity of the foreclosure process."

Jamie Dimon, the bank's chairman and chief executive, tried to skirt the issue after a question from Chris Kotowski, an analyst at Oppenheimer & Co., who asked whether Dimon was comfortable with "the robustness of the Mers system."

"We stopped a while back using them for that purpose," Dimon said. "And we're not going to comment on all the underlying things. One of the things you've got to remember … we've known there are issues in the mortgage business. And for the most part, by the time you get to the end of the process, … we're not evicting people who deserve to stay in the house."

Spokesman Tom Kelly clarified, saying the bank stopped foreclosing in the name of Mers in 2008 and does not register any retail-originated loans with Mers. For loans it services, "we take the title out of the Mers name before we start foreclosure proceedings because some state courts don't accept foreclosures in the Mers name," Kelly said.

Merscorp Inc. in Vienna, Va., operates a registry that tracks the sales of loans, or the right to service them, for 3,400 member companies, which pay annual dues and a fee for every transaction recorded.

For years, homeowners have challenged the system's authority to foreclose on behalf of mortgage lenders, though public records often list a Merscorp subsidiary as the mortgage holder — not the originating lender.

Fannie Mae stepped into the fray this year, telling servicers that any foreclosures filed after May 1 could no longer name Mers as a plaintiff on mortgage loans owned or securitized by the government-sponsored enterprise.

A Mers spokeswoman said JPMorgan Chase registers correspondent loans through the system but has never registered its retail loans through Mers.

Boston Fired Up

Boston is cracking down on abandoned properties, threatening to take the owners to court if they do not improve conditions in a timely way.

Late last month, a task force created by Mayor Thomas M. Menino began inspecting nearly 150 properties citywide deemed unsafe by the Fire Department, the Boston Herald reported.

The task force comprises people from the fire, inspection services and other departments. A warehouse fire in August — one of the biggest in the city's history — prompted the mayor to form the group, the newspaper said.

Tuesday, October 26, 2010

NEW YORK – The New York State court system has instituted a new filing requirement in residential foreclosure cases to protect the integrity of the foreclosure process and prevent wrongful foreclosures. Chief Judge Jonathan Lippman today announced that plaintiff's counsel in foreclosure actions will be required to file an affirmation certifying that counsel has taken reasonable steps – including inquiry to banks and lenders and careful review of the papers filed in the case – to verify the accuracy of documents filed in support of residential foreclosures. The new filing requirement was introduced by the Chief Judge in response to recent disclosures by major mortgage lenders of significant insufficiencies – including widespread deficiencies in notarization and "robosigning" of supporting documents – in residential foreclosure filings in courts nationwide. The new requirement is effective immediately and was created with the approval of the Presiding Justices of all four Judicial Departments.

Chief Judge Lippman said, “We cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process, especially when that process involves basic human needs – such as a family home – during this period of economic crisis. This new filing requirement will play a vital role in ensuring that the documents judges rely on will be thoroughly examined, accurate, and error-free before any judge is asked to take the drastic step of foreclosure.”

Under the new requirement, plaintiff’s counsel in foreclosure matters must submit the affirmation at one of several stages. In new cases, the affirmation must accompany the Request for Judicial Intervention. In pending cases, the affirmation must be submitted with either the proposed order of reference or the proposed judgment of foreclosure. In cases where a foreclosure judgment has been entered but the property has not yet been sold at auction, the affirmation must be submitted to the court referee, and a copy filed with the court, five business days before the scheduled auction. Counsel is also obligated to file an amended version of the affidavit if new facts emerge after the initial filing.

WASHINGTON (AP) — Bank of America, the nation’s largest bank, said [on October 8, 2010] that it would stop sales of foreclosed homes in all 50 states as it reviews potential flaws in foreclosure documents.

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· Bank of America Corp

· JPMorgan Chase & Co

· PNC Financial Services Group Inc

A week earlier, the company had said it would only stop such sales in the 23 states where foreclosures must be approved by a judge.

The move comes amid evidence that mortgage company employees or their lawyers signed documents in foreclosure cases without verifying the information in them.

“We will stop foreclosure sales until our assessment has been satisfactorily completed,” a company spokesman, Dan Frahm, said in a statement. “Our ongoing assessment shows the basis for our past foreclosure decisions is accurate.”

Concern is growing that mortgage lenders have been evicting homeowners using flawed court papers. State and federal officials have been ramping up pressure on the mortgage industry over worries about potential legal violations.

On [October 7, 2010], the Senate majority leader, Harry Reid, Democrat of Nevada, urged five large mortgage lenders to suspend foreclosures in Nevada until they have set up systems to make sure homeowners aren’t “improperly directed into foreclosure proceedings.” Nevada is not among the states where banks had suspended foreclosures.

The Bank of America announcement came as PNC Financial Services Group said it was halting most foreclosures and evictions in 23 states for a month so it can review whether documents it submitted to courts complied with state laws. An official at the Pittsburgh-based bank confirmed the decision on [October 8, 2010], which was reported earlier by The New York Times. The official requested anonymity because the decision has not been publicly announced.

PNC becomes the fourth major United States lender to halt some foreclosures amid evidence that mortgage company employees or their lawyers signed documents in foreclosure cases without verifying the information in them.

In addition to PNC and Bank of America, Ally Financial’s GMAC Mortgage unit and JPMorgan Chase have announced similar moves in the past two weeks.

In some states, lenders can foreclose quickly on delinquent mortgage borrowers. By contrast, the 23 states use a lengthy court process. They require documents to verify information on the mortgage, including who owns it.

NEW YORK (AP) — The chief judge of New York's courts implemented a new rule Wednesday requiring every lawyer handling a foreclosure to sign a form verifying that all paperwork in the case is accurate.

The move comes amid an uproar over accusations that mortgage lenders nationwide cut corners on paperwork and legal procedure as they moved to seize millions of homes. It follows a slew of other state efforts to challenge the foreclosure debacle.

Attorneys general in all 50 states and the District of Columbia are jointly investigating whether mortgage companies have violated state laws. In Maryland, an emergency measure approved this week by the state's highest court outlines how state judges can review foreclosures and stop them if documents are invalid.

In New York, attorneys already have an obligation to ensure that the documents they present to the court are valid, but New York Chief Judge Jonathan Lippman said having them sign something affirming that all papers got a proper review will hold them accountable like never before.

"We want to make sure that everyone is focusing like a laser on these particular types of proceedings," he said. "It puts them on notice. That's what this is all about. We all have to make doubly sure that we are doing what we should be doing in the first place."

The rule requiring a signed affirmation applies to both new cases and the 78,000 foreclosure actions already under way in New York courts.

Lawyers handling pending foreclosure actions will probably need to go back to their clients and verify that all proper steps were followed, Lippman said. The form created by the court requires the lawyers to give the name of the bank employee who affirmed that the records were accurate and the date the conversation took place.

The president of the New York State Bar Association, Stephen Younger, issued a statement praising the new rule. "The chief judge has taken swift steps to address a nationwide problem in foreclosure actions," he said.

Some New York judges have complained loudly about rampant errors of varying severity in legal filings by banks seeking to foreclose on record numbers of homeowners.

In some cases, documents that were supposed to have been given an individualized review were signed by bank employees who never read them or checked them for errors.

A few major banks froze all foreclosures nationwide while they reviewed their filings for problems. Two of the biggest, Bank of America and GMAC Mortgage, resumed proceedings this week.

Lippman said he was convinced the courts were seeing "systemic structural failings" in the foreclosure process, and he said judges and lawyers have a responsibility not to close their eyes to paperwork errors — even if they seem minor.

"You are talking about tremendous consequences. You are talking about taking people's homes," he said. "Those papers have to be accurate. They have to be credible."

Bank of America (BAC), for the first time, acknowledged it has uncovered some mistakes in its foreclosure files, The Wall Street Journal reported, as it starts to resubmit documents in 102,000 cases.

The nation's largest mortgage lender discovered errors in 10 to 25 of the first several hundred foreclosure cases it examined over the past week. The mistakes ranged from improper paperwork to lack of signatures and missing files, as well as information irregularities about the properties or payment history, people familiar with the results told the Journal. The bank has prepared less than 1% of the first foreclosure files that it plans to submit.

Some of the problems found so far were relatively minor -- such as misspellings of borrowers' names -- and didn't result in wrongful foreclosures, the bank found.

All 50 states have recently launched investigations into allegations of improper foreclosure filings and procedures, including the use of "robo-signers." Bank of America, Wells Fargo (WFC) and others have been under pressure to show that their mortgage process isn't flawed.

Wednesday, October 13, 2010

Though just about everyone has heard about the scandal over "robo-signing" of foreclosure documents, the issues are so complex that what's at stake isn't always clear. After reading dozens of news accounts, editorials and the most widely followed financial blogs, I've assembled a basic account of the scandal -- and outlined five of its potential implications.

1. That homeowners who failed to pay their mortgages will lose their homes through the foreclosure process is not the primary issue. What's at stake is due process of law.

2. The issue isn't just about a minor "technical procedure," as the banks and mortgage-servicing industry are claiming. Boiled down to its essence, the problem is simple: If an individual citizen did what the banking/mortgage-service industry has done, that is, forge signatures and ignore procedures designed to protect property rights, then the documents would be rejected and the individual would be accused of fraud or embezzlement.

Yet, when banks and mortgage servicers break these same laws, it gets brushed aside as a trivial "oops, we forgot to dot the i" technicality. This flouting of the law by politically powerful banks undermines one of the key tenets of the American way, which is that we're all equal before the law.

The systemic flouting of the law that has been uncovered points to a disturbing conclusion: Two systems of law are operating in our nation, one for "the little guy" and one for banks and mortgage servicers.

Accounts of abuse, ignoring procedural law and gross incompetence are now legion. For instance, one Florida homeowner who didn't even have a mortgage was foreclosed by Bank of America (BAC). Only after a local newspaper began investigating the case did the bank move to sort out what could be viewed as an illegal "taking" of real property.

In another case, Deutsche Bank National Trust filed to foreclose even though it had sold the mortgage to Goldman Sachs, meaning it had no legal right to foreclose. One judge found that roughly half (46 out of 104) of the foreclosure motions filed in his court were so full of errors that he refused to approve them.

Many commentators have already dismantled the bank/mortgage servicers' claims that the legal issues are all just trivial technicalities. It's hardly trivial that documents filed in court are the foundation of our legal system. A signed affidavit is legally equivalent to providing live testimony in court. If an affidavit is untrue, that's the same as lying in court, which is a crime called perjury.

Yet the current system is filled with "robo-signers" who electronically signed up to 10,000 foreclosure filing a month, making a legal claim of their accuracy. Furthermore, though attorneys are prohibited from making a material misrepresentation to the court, it's clear that such misrepresentations of fact (such as who actually owns the mortgage) are widespread in foreclosure proceedings.

3. The system of slicing up mortgages into pieces and then bundling the pieces into securities is structurally flawed.

In essence, the widespread "packaging" of hundreds of mortgages into mortgage-backed securities (MBS) marketed by Wall Street investment banks has bypassed the property rights laws that underpin ownership and transfer of home loans and deeds.

In the pre-MBS days, a bank would originate a home mortgage and then hold the loan as an asset, collecting the interest and principal payments from the homeowner. But Wall Street banks divided the payments that go toward interest and loan principal into "tranches," or slices, which were assembled by risk and rate of return into pools of mortgages that were then sold as a single security.

With the mortgages divided into pieces that were then bundled into securities that were bought and sold numerous times, the ownership of the underlying mortgage and home often became muddled. This is how two different companies can end up filing foreclosure documents on the same house.

Add in the large number of securitized home equity loans that piggyback on first mortgages and derivative securities such as collateralized debt obligations (CDOs), and you get a nightmarish mishmash of "senior tranches" and multiple claims on the same property.

Stripped of complexity, the issue is straightforward: Every time these securities changed hands, the various claims on the underlying house should have been transferred as well. In many cases, they weren't. In some cases, foreclosures have been allowed even when the original mortgage has been lost.

If you don't need the original document to take someone's home, then exactly what rule of law is at work in America?

4. The nation's system for recording mortgages is woefully inadequate to the task of tracking home loans that have been sliced and diced into tranches and traded freely as securities.

To enable a smooth trading system of these MBS, the banking/mortgage industry set up a privately owned loan-tracking service known as the Mortgage Electronic Registration System (MERS) in 1997. The registry acts a sort of legal proxy of ownership, thereby eliminating the need to record changes in property ownership in the traditional manner, i.e. in local land records.

MERS records loan assignments electronically. It doesn't own the mortgages it registeres, but it's listed in public records as a nominee for the actual owner of the loan or as the original mortgage holder.

Assigning ownership of mortgages to this registry saved the industry a bundle. MERS was estimated to have saved the mortgage industry an $1 billion in its first decade of existence. Some 60 million loans are registered to MERS.

5. Outright foreclosure fraud is now systemic. This includes forged signatures, falsified mortgage numbers, false claims of ownership, false claims that the paperwork has been properly reviewed and document fabrication.

Indeed, for a price, you can have any missing document you might need to file a foreclosure motion "recreated" or "created" out of thin air.

Now that this systemic reliance on falsified documents, forged signatures and myriad "shortcuts" (such as not having the original mortgage) has been revealed, several lenders have halted foreclosures and evictions. Some have stopped proceedings in the 23 states that require a judge's approval, while others such as Bank of America have halted foreclosures in all 50 states.

In response to a public outcry about these widespread abuses, the attorneys general of 40 states are pooling resources to investigate the mortgage and foreclosure industries. One state AG has already filed suit against a leading mortgage servicer, alleging fraud in foreclosures processed by the firm. Ohio Attorney General Richard Cordray said the fraud was the "tip of an iceberg of industrywide abuse of the foreclosure process" and is asking for civil penalties of up to $25,000 for each violation of consumer laws.

Freezing the U.S. Real Estate Market

This systemic breakdown of the procedural laws intended to protect property rights may well have far-reaching consequences beyond lawsuits by public agencies and by individuals who have been harmed or defrauded.

Flawed foreclosure documents mean sales of foreclosed home are in limbo: How can any future owner obtain title insurance when the ownership of the mortgage and thus the integrity of the foreclosure itself is in question?

If millions of foreclosed homes cannot be sold with unambiguously clear titles, then that will effectively freeze a significant portion of the American real estate market. After all, about a third of all home sales involve residences in default or foreclosure.

Fannie Mae has been pulling foreclosed homes off the market, scotching signed deals and removing properties from inventory of unsold homes. Homeowners already in the foreclosure process are now wondering if the foreclosure-fraud debacle can delay or even cancel their impending eviction.

Indeed, the widespread fraud and blatant flouting of the law by politically powerful lenders is eroding many Americans' belief in the fairness of the financial and legal systems. As a result, some are asking why they should continue following the rules when lenders and mortgage servicers evade and abuse the law with impunity.

How Does the U.S. Solve Its Real Estate Crisis?

Stories about middle-class homeowners ensnared in what's either fraud or misrepresentation, depending on one's interpretation, now include a troubling subtext: Some of these once rock-solid citizens are refusing to comply with the demands of lenders.

Some high-visibility commentators are characterizing the foreclosure and MBS debacle as "the biggest fraud in the history of the capital markets." Hyperbole, or simply the truth few dare to state?

While that can be debated, what cannot be debated is the massive loss of trust in the foundations of property rights and rule of law that has occurred. Also not debatable is the impact this loss of trust is having on the housing market, large sections of which are effectively locked.

If distressed mortgages cannot be foreclosed and impaired debts can't be liquidated via auctions or sales on the open market, then how does the U.S. unburden itself of the overhang of housing supply and uncollectible mortgages? It cannot do so with this cloud hanging over the housing and mortgage markets. That will have serious consequences for banks that aren't collecting mortgage payments, for servicers facing massive lawsuits and, eventually, for the value of housing in a market stuffed with a "shadow inventory" of distressed or defaulted homes that can't be sold.

Could the foreclosure mess end up stalling the economic recovery? Perhaps the answer can be found by rephrasing the question: How can an economy be healthy if its mortgage, banking and housing markets are in a state of profound financial and legal disruption?

Monday, October 4, 2010

As some of the nation’s largest lenders have conceded that their foreclosure procedures might have been improperly handled, lawsuits have revealed myriad missteps in crucial documents.

The flawed practices that GMACMortgage, JPMorgan Chase and Bank of America have recently begun investigating are so prevalent, lawyers and legal experts say, that additional lenders and loan servicers are likely to halt foreclosure proceedings and may have to reconsider past evictions.

Problems emerging in courts across the nation are varied but all involve documents that must be submitted before foreclosures can proceed legally. Homeowners, lawyers and analysts have been citing such problems for the last few years, but it appears to have reached such intensity recently that banks are beginning to re-examine whether all of the foreclosure papers were prepared properly.

In some cases, documents have been signed by employees who say they have not verified crucial information like amounts owed by borrowers. Other problems involve questionable legal notarization of documents, in which, for example, the notarizations predate the actual preparation of documents — suggesting that signatures were never actually reviewed by a notary.

Other problems occurred when notarizations took place so far from where the documents were signed that it was highly unlikely that the notaries witnessed the signings, as the law requires.

On still other important documents, a single official’s name is signed in such radically different ways that some appear to be forgeries. Additional problems have emerged when multiple banks have all argued that they have the right to foreclose on the same property, a result of a murky trail of documentation and ownership.

There is no doubt that the enormous increase in foreclosures in recent years has strained the resources of lenders and their legal representatives, creating challenges that any institution might find overwhelming. According to the Mortgage Bankers Association, the percentage of loans that were delinquent by 90 days or more stood at 9.5 percent in the first quarter of 2010, up from 4 percent in the same period of 2008.

But analysts say that the wave of defaults still does not excuse lenders’ failures to meet their legal obligations before trying to remove defaulting borrowers from their homes.

“It reflects the hubris that as long as the money was going through the pipeline, these companies didn’t really have to make sure the documents were in order,” said Kathleen C. Engel, dean for intellectual life at Suffolk University Law School and an expert in mortgage law. “Suddenly they have a lot at stake, and playing fast and loose is going to be more costly than it was in the past.”

Attorneys general in at least six states, including Massachusetts, Iowa, Florida and Illinois, are investigating improper foreclosure practices. Last week, Jennifer Brunner, the secretary of state of Ohio, referred examples of what her office considers possible notary abuse by Chase Home Mortgage to federal prosecutors for investigation.

The implications are not yet clear for borrowers who have been evicted from their homes as a result of improper filings. But legal experts say that courts may impose sanctions on lenders or their representatives or may force banks to pay borrowers’ legal costs in these cases.

Judges may dismiss the foreclosures altogether, barring lenders from refiling and awarding the home to the borrower. That would create a loss for the lender or investor holding the note underlying the property. Almost certainly, lawyers say, lawsuits on behalf of borrowers will multiply.

In Florida, problems with foreclosure cases are especially acute. A recent sample of foreclosure cases in the 12th Judicial Circuit of Florida showed that 20 percent of those set for summary judgment involved deficient documents, according to chief judge Lee E. Haworth.

“We have sent repeated notices to law firms saying, ‘You are not following the rules, and if you don’t clean up your act, we are going to impose sanctions on you,’ ” Mr. Haworth said in an interview. “They say, ‘We’ll fix it, we’ll fix it, we’ll fix it.’ But they don’t.”

As a result, Mr. Haworth said, on Sept. 17, Harry Rapkin, a judge overseeing foreclosures in the district, dismissed 61 foreclosure cases. The plaintiffs can refile but they need to pay new filing fees, Mr. Haworth said.

The byzantine mortgage securitization process that helped inflate the housing bubble allowed home loans to change hands so many times before they were eventually pooled and sold to investors that it is now extremely difficult to track exactly which lenders have claims to a home.

Many lenders or loan servicers that begin the foreclosure process after a borrower defaults do not produce documentation proving that they have the legal right to foreclosure, known as standing.

As a substitute, the banks usually present affidavits attesting to ownership of the note signed by an employee of a legal services firm acting as an agent for the lender or loan servicer. Such affidavits allow foreclosures to proceed, but because they are often dubiously prepared, many questions have arisen about their validity.

Although lawyers for troubled borrowers have contended for years that banks in many cases have not properly documented their rights to foreclose, the issue erupted in mid-September when GMAC said it was halting foreclosure proceedings in 23 states because of problems with its legal practices. The move by GMAC followed testimony by an employee who signed affidavits for the lender; he said that he executed 400 of them each day without reading them or verifying that the information in them was correct.

JPMorgan Chase and Bank of America followed with similar announcements.

But these three large lenders are not the only companies employing people who have failed to verify crucial aspects of a foreclosure case, court documents show.

Last May, Herman John Kennerty, a loan administration manager in the default document group of Wells Fargo Mortgage, testified to lawyers representing a troubled borrower that he typically signed 50 to 150 foreclosure documents a day. In that case, in King County Superior Court in Seattle, he also stated that he did not independently verify the information to which he was attesting.

Wells Fargo did not respond to requests for comment.

In other cases, judges are finding that banks’ claims of standing in a foreclosure case can conflict with other evidence.

Last Thursday, Paul F. Isaacs, a judge in Bourbon County Circuit Court in Kentucky, reversed a ruling he had made in August giving Bank of New York Mellon the right to foreclose on a couple’s home. According to court filings, Mr. Isaacs had relied on the bank’s documentation that it said showed it held the note underlying the property in a trust. But after the borrowers supplied evidence indicating that the note may in fact reside in a different trust, the judge reversed himself. The court will revisit the matter soon.

Bank of New York said it was reviewing the ruling and could not comment.

Another problematic case involves a foreclosure action taken by Deutsche Bank against a borrower in the Bronx in New York. The bank says it has the right to foreclose because the mortgage was assigned to it on Oct. 15, 2009.

But according to court filings made by David B. Shaev, a lawyer at Shaev & Fleischman who represents the borrower, the assignment to Deutsche Bank is riddled with problems. First, the company that Deutsche said had assigned it the mortgage, the Sand Canyon Corporation, no longer had any rights to the underlying property when the transfer was supposed to have occurred.

Additional questions have arisen over the signature verifying an assignment of the mortgage. Court documents show that Tywanna Thomas, assistant vice president of American Home Mortgage Servicing, assigned the mortgage from Sand Canyon to Deutsche Bank in October 2009. On assignments of mortgages in other cases, Ms. Thomas’s signatures differ so wildly that it appears that three people signed the documents using Ms. Thomas’s name.

Given the differences in the signatures, Mr. Shaev filed court papers last July contending that the assignment is a sham, “prepared to create an appearance of a creditor as a real party in interest/standing, when in fact it is likely that the chain of title required in these matters was not performed, lost or both.”

Mr. Shaev also asked the judge overseeing the case, Shelley C. Chapman, to order Ms. Thomas to appear to answer questions the lawyer has raised.

John Gallagher, a spokesman for Deutsche Bank, which is trustee for the securitization that holds the note in this case, said companies servicing mortgage loans engaged the law firms that oversee foreclosure proceedings. “Loan servicers are obligated to adhere to all legal requirements,” he said, “and Deutsche Bank, as trustee, has consistently informed servicers that they are required to execute these actions in a proper and timely manner.”

Reached by phone on Saturday, Ms. Thomas declined to comment.

The United States Trustee, a unit of the Justice Department, is also weighing in on dubious court documents filed by lenders. Last January, it supported a request by Silvia Nuer, a borrower in foreclosure in the Bronx, for sanctions against JPMorgan Chase.

In testimony, a lawyer for Chase conceded that a law firm that had previously represented the bank, the Steven J. Baum firm of Buffalo, had filed inaccurate documents as it sought to take over the property from Ms. Nuer.

The Chase lawyer told a judge last January that his predecessors had combed through the chain of title on the property and could not find a proper assignment. The firm found “something didn’t happen that needed to be fixed,” he explained, and then, according to court documents, it prepared inaccurate documents to fill in the gaps.

The Baum firm did not return calls to comment.

A lawyer for the United States Trustee said that the Nuer case “does not represent an isolated example of misconduct by Chase in the Southern District of New York.”

Chase declined to comment.

“The servicers have it in their control to get the right documents and do this properly, but it is so much cheaper to run it through a foreclosure mill,” said Linda M. Tirelli, a lawyer in White Plains who represents Ms. Nuer in the case against Chase. “This is not about getting a free house for my client. It’s about a level playing field. If I submitted false documents like this to the court, I’d have my license handed to me.”

The company, Old Republic National Title Insurance, told its agents Friday that it would not write policies on foreclosed Chase properties until “the objectionable issues have been resolved,” according to a memorandum sent out by the firm’s underwriting department.

A Chase spokesman declined to comment. Old Republic executives did not return calls for comment. The title insurer, which is based in Minneapolis, said earlier in the week that it would not write policies for properties that had been foreclosed by another big lender, GMAC Mortgage.

As GMAC and Chase try to deal with questions over their legal methods, they have halted all foreclosures in the 23 states where they need a court’s approval. Late Friday, Bank of America said it would stop all its pending foreclosures in those states as well.

GMAC and Bank of America have declined to say how many cases are involved. Chase said it was halting 56,000 cases. About two million households in the country are in foreclosure, and millions more are on the verge.

After a lender seizes a home in a foreclosure case and the defaulting homeowner is, if necessary, evicted, the company works with local real estate agents to prepare the house for sale. The National Association of Realtors said distressed sales, including foreclosures, were 34 percent of all existing home sales in August. In some stricken areas, the percentage is much higher.

When foreclosures are done with faulty documentation, that could leave the new owners of the house vulnerable to claims. Title insurance protects the buyer against defects, errors or omissions in the chain of title.

Old Republic said in the memorandum that its agents were already reporting written cancellations of contracts involving both Chase and GMAC.

Shares of the major title insurance companies dropped on Friday amid concern that their business would suffer as a result of the foreclosure freezes. Fidelity National Financial fell more than 4 percent, while First American Financial dropped 3 percent.

Fidelity National issued a statement saying it did not believe the problems with the foreclosure process would have “a material adverse impact.”

Mark P. Stopa, a lawyer in Florida who represents defaulting homeowners, said that if more title insurance firms began to shy away from insuring foreclosed properties, the entire housing market could suffer. The prices of foreclosures would plummet, because lenders will not issue a new mortgage without title insurance.

“Judges have to force banks to do foreclosures correctly,” Mr. Stopa said. But that would require a significant increase in staff, he said, and “I’ll believe it when I see it.”

Documents submitted to a court are supposed to be true as submitted. As an attorney, if I file with a court a document in which I swore that I personally verified the information contained within the document is true, but I didn't actually do that, I'd get in real trouble. It's simple: That's fraud in the eyes of the court.

GMAC, JPMorgan Chase (JPM), Bank of America (BAC) and One West Bank employees routinely sign hundreds of documents without verifying what they're signing. Those documents are then submitted to courts as if the documents were true, to enable the banks to foreclose on delinquent properties. Wells Fargo (WFC) and Citigroup's (C) CitiMortgage told The New York Times their employees do not engage in similar practices. Yet, new evidence I've found shows they have. At deadline, I was still awaiting a response from CitMortgage.

Confusion at Wells Fargo

For example, in one case I reviewed, Herman John Kennerty of Wells Fargo gave a deposition describing the department he oversees for Wells Fargo. It's a department dedicated to simply signing documents. Kennerty testified that he signs 50 to 150 documents a day, verifying only the date on each. Although the foreclosure in that case was upheld, Wells Fargo did not dispute Kennerty's signing practices.

What else might Kennerty want to verify? Well, in one document he signed that I've reviewed, he supposedly transferred the mortgage from Washington Mutual Bank FA to Wells Fargo on July 12, 2010. But that's impossible because Washington Mutual Bank FA changed its name in 2004, and by any name WaMu ceased to exist in 2008, when the Federal Deposit Insurance Corp. took it over. Making the document even less comprehensible, the debtor had declared bankruptcy a month earlier, according to consumer bankruptcy attorney Linda Tirelli, who represents the debtor. Why would Wells Fargo want a mortgage from someone in bankruptcy?

Finally, Tirelli points out that the papers Wells Fargo filed included a different transfer of the mortgage dated three days before the debtor took out the loan. The documents are a mess, yet Kennerty signed them regardless. Wells Fargo flatly stands behind its practices:

"Wells Fargo policies, procedures and practices satisfy us that the affidavits we sign are accurate. We audit, monitor and review our affidavits under controlled standards on a daily basis. We will stand by our affidavits and, if we find an error, we will take the appropriate corrective action.

As a standard business practice we continually review, reinforce and strengthen our policies and procedures."

Wells offered no explanation of the document Kennerty signed in Tirelli's case.

Legal Nonsense at CitiMortgage

In a similar example, one M. Matthews signed a number of documents that CitiMortgage has used to try to foreclose on properties. While Matthews may or may not sign hundreds of documents a day -- I have not yet found a deposition in which he swears that he does -- he certainly does not seem to verify the contents of the documents he's signing.

For example, he signed a document supposedly transferring a mortgage from Lehman Brothers to Citi in 2009. It's hard to see how that's possible because Lehman had already ceased to exist. When confronted with its nonsensical filing, Citigroup decided not to foreclose. Instead, it gave the homeowner a meaningful mortgage modification -- $15,000 principal reduction, plus a 30-year fixed mortgage at 3%. Tirelli, who represented the debtor in this case, too, notes that she sees bad documents in the vast majority of cases, and she keeps files of "robo-signed" documents.

I want to note that in both the WaMu and Lehman Brothers documents, the signers were officially representing an entity called MERS, which was acting as the "nominee" of WaMu and the "nominee" of Lehman Brothers. But that doesn't change the problems with the documents as filed. MERS can't continue to be the nominee of an entity that doesn't exist. Moreover, MERS can't assign something it doesn't have, and MERS itself doesn't own the underlying note or mortgage.

Wells Fargo and CitiMortgage aren't the only big banks to apparently misrepresent their practices in the media. JPMorgan Chase told The New York Times that it had not withdrawn any documents in a pending case. However, Chase has in fact withdrawn robo-signed documents in a case Tirelli is currently defending. Chase now faces possible sanctions in the case.

Cutting Corners

Why are the big, sophisticated banks submitting such problematic documents to the courts? The key reason is that sometimes when a bank wants to foreclose, it has to prove it actually has the right to foreclose -- that it owns the note and accompanying mortgage. Unfortunately for the banks, the securitization of mortgages and the changes in property-ownership documentation that accompanied such deals can make it hard for the banks to establish clean chains of title and produce original documents. That's especially difficult in an environment where a massive number of foreclosures must be started and completed in a timely manner.

Bankruptcy attorney O. Max Gardner explains that the time pressures to get these foreclosures done is overwhelming. One major foreclosure company, Lender Processing Services, actually rates attorneys on how quickly they complete each part of the foreclosure process for its mortgage-servicer clients, giving lawyers green, yellow or red labels to reflect their "Attorney Performance Rate." If an attorney fails to keep pace and lands in the red long enough, that attorney won't get any more business from LPS, or rather, from the banks LPS works for. Gardner calls it "stopwatch justice."

Sponsored Links

So rather than take the time to generate the correct documentation, it seems the banks cut corners. Yet these are not small nicks off the end of the corners, despite protests from the banks that the documents are essentially true, just signed badly.

Documents like those cited in this article -- which are common -- falsify the chain of title for the underlying properties. Clean title is so crucial for real estate deals that they won't close if a seller can't give good title. In fact, one major title insurer, Old Republic National Title Insurance, will no longer insure titles for GMAC foreclosures because of the document problem. The stock market is weighing in, too, as shares of title insurers have taken a hit.

The chain-of-title problems has other practical consequences. Banks sometimes don't know which properties they can foreclose on. For example, banks have foreclosed on homes bought with cash. Two banks have tried to foreclose on the same property. And so on. The "mistakes" have been many.

Beyond the title problem is the fundamental issue of the integrity of the court system. When attorneys file false documents, it's called a fraud on the court for a reason: Courts can't function when lawyers do that.

The Bright Light of Bankruptcies

According to attorneys who assist clients facing foreclosure, bad documents have been turning up for years. So why is the practice only coming to light now? Because most people facing foreclosure don't have attorneys to check the documents. Most don't even contest the foreclosure.

Bankruptcy court is where most of the fraud comes out because in bankruptcy, to prove the bank is owed money and that its claim is "secured" -- meaning it should get paid first -- a bank has to prove it has the right to foreclose. It has to produce the necessary documents. Indeed, the reason that the banks are halting foreclosures in only 23 states is that in those states, judges are involved in the foreclosure process, meaning somebody might actually start looking at the documents.

Not all debtors in bankruptcy have attorneys, and not all those attorneys know what to look for. But enough attorneys have caught on to the bank's practices that robo-signer fraud is finally getting exposure on the same scale as it's being committed.

Caveats All Around

Title companies take note: It's increasingly obvious that GMAC's foreclosure problems are the tip of the iceberg. The title you insured on the resale of any foreclosed property -- particularly on mortgages that were included in securitizations -- might be clouded. Better double-check those documents.

Purchasers of foreclosed properties: I hope you bought title insurance. And you might want to get your lawyer to look at the foreclosure file.

Homeowners facing foreclosure: Make sure you or your attorney scrutinizes bank documents carefully because if anything is amiss, you may be able to get a meaningful modification of your mortgage instead of losing your home.

Banks submitting these documents: You could face big sanctions if courts notice you make the same kind of bad filings over and over.

Attorneys submitting these documents: If state bar associations start paying attention, you could risk your professional license on the robo-signed dotted line.

Friday, October 1, 2010

WASHINGTON -- Bank of America says it is delaying foreclosures in 23 states as it examines whether it rushed the foreclosure process for thousands of homeowners without reading the documents.

Bank of America is not yet able to estimate how many homeowners cases will be affected, a spokesman for the nation's largest bank says.

A bank official acknowledged in a legal proceeding in February that she signed up to 8,000 foreclosure documents a month and typically didn't read them. The Associated Press obtained the document Friday.

The executive's admission adds the nation's largest bank to a growing list of mortgage companies whose employees signed documents in foreclosure cases without verifying the information in them.

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